What To Expect From Alibaba Through FY’19 After Another Quarter Of Robust Growth

Alibaba (NYSE:BABA) announced its fiscal Q1 2019 earnings on August 23, reporting a 61% annual increase in revenues for the quarter to ¥80.9 billion ($12.2 billion). The e-commerce giant has reported strong year-over-year growth in revenues across segments over the last few years, with recent acquisitions further fueling growth. In recent years, Alibaba has acquired Lazada to boost international commerce revenues, online video streaming platform Youku Tudou for its digital media and entertainment segment, Cainiao for global logistics, Hema supermarkets to boost New Retail, and most recently Ele.me food delivery services. While revenues continue to surge at a massive pace, expansion has taken a toll on margins. This trend has been prevalent in recent years and is expected to continue through the end of the year. We have created an interactive full year earnings forecast dashboard for Alibaba where we have summarized our expectations for Alibaba’s combined full year results for FY’19. If you disagree with our forecasts, you can change expected segment revenue and EBITDA margin figures for Alibaba to gauge how it will impact expected EPS for the full year.

Key Growth Trends For FY’19

Alibaba has continued to report strong growth in core commerce retail business in China, with a 33% growth in revenues to ¥46.8 billion ($7 billion) in the June quarter. In addition, the company has shown clear intent to expand its e-commerce business in international markets as well as to expand to offline retail domestically. Alibaba announced earlier this year that it has doubled its investment in Lazada to $4 billion, to increase its presence in southeast Asian markets. Further, the company continues to build on its New Retail business, which was boosted by the addition of Hema supermarket to the company’s portfolio. As a result, other revenues in China retail (that include revenues from Tmall Import and Hema fresh food grocery) were up a massive 344% to ¥7.1 billion ($1.1 billion). Furthermore, cloud computing revenue continued its growth spree, with 93% annual growth in revenues to ¥4.7 billion ($700 million). Going forward, we forecast Alibaba’s FY’19 net revenues to continue to increase rapidly at over 40% to ¥358 billion ($52 billion). We forecast adjusted EBITDA margins to continue to fall gradually over FY’18 levels at just under 40%. Continued expansion efforts and venturing into offline retail should limit margin improvement over the next couple of years.

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